[LV2ndHome]

Originally Posted by von949

So....

If home prices keep falling, the more people that will come in and buy(myself included), the more people that buy, the less inventory out there, the less inventory, the more home prices will rise.

...am I way off?

There's an old saying among commodity traders: "The cure for low prices is low prices", meaning cycles occur just as you outlined.

[TheGreatCurve]

Originally Posted by von949

Big difference between people financing 500K homes with stated income versus people buying 70K-150K homes with cash or proven income.

Another difference...

In 05' I got pre-approved to buy a $470K home which I definitely could not afford.(Utah)

Last year I had to jump through hoops just to buy a home that my wife and myself could afford(mortgage) 4 times over.(Vegas)

Things have changed.

That's not relevant to my point. It doesn't matter how people paid for their houses. My point is, just because everyone was buying a house during the bubble (whether with financing or with cash), it wasn't the smart thing to do. So just because everyone was/is doing something, doesn't always make it the smart thing to be doing.

[TheGreatCurve]

Originally Posted by ScoopLV

My guess is that five years from now, there will be two sorts of Americans:

1) Those who bought real estate during this depression and are sitting pretty.

2) Those who wish they had.

To think otherwise is to be overly pessimistic. The gloom and doomers are missing out. That sound in the background is opportunity knocking. It hasn't knocked this loud since the 1930s.

But isn't that what everyone was also saying back in 2005?

[TheGreatCurve]

Originally Posted by Robustus

You are completely ignoring some basic economic principles of competition. The marginal cost of production is HUGELY relevant to the ultimate price of a good. Look at any mature industry; margins are small because competition has brought the price down to near cost. This is what the happens in a well functioning market economy.

I think you missed the word "market" in my post:

Originally Posted by TheGreatCurve

My point is that the market price of a product is set by the market and not by how much it costs to make or build that product.

The marginal cost of production is irrelevant to the MARKET price of the product. That only influences what the manufacturer decides to price the product, but that is NOT the product's market price. The market price is only set by the market, and is directly correlated to how much customers are willing to pay for said product. If the price of your product is too high, very few customers will buy your product and you will have to discount its price to a point at which customers are willing to pay, even if it is less than your marginal cost of production. This is why manufacturers are forced to dump their bloated inventory for below production cost all the time. Likewise, if you price your product too low, customers will bid up the price to its true market price regardless of what the marginal cost of production is. This is what happened to real estate during the bubble.

[ScoopLV]

Originally Posted by TheGreatCurve

But isn't that what everyone was also saying back in 2005?

No, it isn't. There was a strong and vocal minority warning that real estate prices were hyper-inflated. Granted, there were also those who were confident that the bubble would just keep growing. The financing process is night and day compared to 2005. That's huge. People now have to jump through flaming hoops to get financing on a $100K house. Before, banks were shovelling money out the door, giving loans to any chimp with a pen. They were just going to bundle and sell the mortgages anyway. So it didn't matter that Bubba claimed to make $2 million a year as a roofer. Give that man a loan!

You can go back to the 2005-2007 posts and read for yourself.

But my guess is that you don't remember what was going on in the Real Estate market in 2005 because you were busy playing Pokemon at the time.

[von949]

Originally Posted by TheGreatCurve

That's not relevant to my point. It doesn't matter how people paid for their houses. My point is, just because everyone was buying a house during the bubble (whether with financing or with cash), it wasn't the smart thing to do. So just because everyone was/is doing something, doesn't always make it the smart thing to be doing.

Mid 2000s was a bubble for sure but what are we in now? Is the current market considered a bubble?

Depending on when the bubble started...I know a few family members that made out pretty good buying during the bubble and reselling a few years later.

[MomMom]

Nevada Leads the Nation in Foreclosure Sales

LAS VEGAS -- Foreclosed homes made up a higher percentage of residential sales in Nevada from July through September than in any other state, RealtyTrac.com reported Wednesday night.




Nevada Leads Nation in Foreclosure Sales

[Robustus]

Originally Posted by TheGreatCurve

I think you missed the word "market" in my post:

The marginal cost of production is irrelevant to the MARKET price of the product. That only influences what the manufacturer decides to price the product, but that is NOT the product's market price. The market price is only set by the market, and is directly correlated to how much customers are willing to pay for said product. If the price of your product is too high, very few customers will buy your product and you will have to discount its price to a point at which customers are willing to pay, even if it is less than your marginal cost of production. This is why manufacturers are forced to dump their bloated inventory for below production cost all the time. Likewise, if you price your product too low, customers will bid up the price to its true market price regardless of what the marginal cost of production is. This is what happened to real estate during the bubble.

You're still missing the same two critical points:
1) Competition drives prices, over time, to a small margin above production costs. Thus, production costs do drive price long term.
2) Yes, absolutely, there are tremendous short-term permutations to the fundamentals that have huge influence over your all-caps MARKET price. But you seem to be thoroughly missing the distinction between long-term dynamics and short-term permutations.

[TheGreatCurve]

Originally Posted by ScoopLV

No, it isn't. There was a strong and vocal minority warning that real estate prices were hyper-inflated. Granted, there were also those who were confident that the bubble would just keep growing.

The key word in your sentence is "minority". I thought were were talking about the majority? The majority are saying now exactly what the majority were saying back in 2005. Scary.

The majority also thought dot-com stocks were cheap back in 2001 because prices had dropped by 70%. Guess where they went from there?

Originally Posted by ScoopLV

The financing process is night and day compared to 2005. That's huge. People now have to jump through flaming hoops to get financing on a $100K house. Before, banks were shovelling money out the door, giving loans to any chimp with a pen. They were just going to bundle and sell the mortgages anyway. So it didn't matter that Bubba claimed to make $2 million a year as a roofer. Give that man a loan!

Wouldn't the result of that be downward pressure on housing prices? If most people are forced to pay cash for houses because they can't get loans, how are $100K houses ever going to go back up to $400K?

And once investors have spent most of their cash, wouldn't prices drop further since now normal buyers will have to come up with enough cash to buy or investors with any cash left are only willing to buy more if they can buy them even cheaper?

Originally Posted by ScoopLV

But my guess is that you don't remember what was going on in the Real Estate market in 2005 because you were busy playing Pokemon at the time.

I do remember vividly what was going on back in 2005. I thought people who were buying houses were either insane or stupid or both. I was busy avoiding the housing market like the plague. In fact, I advised my parents to sell their house in Vegas then, which they did. Looks like I made the right call.

[TheGreatCurve]

Originally Posted by Robustus

You're still missing the same two critical points:
1) Competition drives prices, over time, to a small margin above production costs. Thus, production costs do drive price long term.
2) Yes, absolutely, there are tremendous short-term permutations to the fundamentals that have huge influence over your all-caps MARKET price. But you seem to be thoroughly missing the distinction between long-term dynamics and short-term permutations.

There's no guarantee that you can maintain prices above your production costs. If there is no demand for your product at your production cost, you will not be in business long enough for there to be a "long term".